MICHIGAN CITY, Ind., July 27, 2022 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) — Horizon Bancorp, Inc. ("Horizon" or the "Company") announced its unaudited financial results for the three– and six–months ending June 30, 2022.

"We are extremely pleased with our performance during the second quarter of fiscal 2022. Record earnings and profitability can be attributed to strong loan growth and the higher interest rate environment which led to a meaningful increase in pre–tax, pre–provision net income," Chairman and CEO Craig M. Dwight said. "This level of organic growth would not have been possible without the hard work and dedication from our team to meet the evolving needs of our customers. We remain committed to driving organic growth through our investments in commercial and consumer loan production, finding strategic opportunities to deploy capital, and leveraging our asset sensitive balance sheet and strong credit quality to achieve long–term shareholder value."

Second Quarter 2022 Highlights

Net income grew to a record $24.9 million, up 5.5% from the linked quarter and 12.1% from the prior year period. Diluted earnings per share ("EPS") of $0.57 was up from $0.54 for the first quarter of 2022 and $0.50 for the second quarter of 2021.
Pre–tax, pre–provision net income grew to $29.1 million, up 13.1% from the linked quarter and 18.9% from the prior year period. This non–GAAP financial measure is utilized by banks to provide a greater understanding of pre–tax profitability before giving effect to credit loss expense. (See the "Non–GAAP Reconciliation of Pre–Tax, Pre–Provision Net Income" table below.) Horizon recorded a provision expense of $240,000 in the quarter compared to a provision release of $1.4 million in the linked quarter, and a provision release of $1.5 million in the prior year period.
Reported net interest margin ("NIM") was 3.19% and adjusted NIM was 3.12%, with reported NIM increasing by 20 basis points and adjusted NIM increasing by 19 basis points from the first quarter of 2022. (See the "Non-GAAP Reconciliation of Net Interest Margin" table below for the definition of this non–GAAP calculation of adjusted NIM.)
Total loans, excluding Federal Paycheck Protection Program ("PPP") loans and sold commercial participation loans, grew by 6.2%, or 25.1% annualized, during the second quarter to $3.89 billion at period end compared to $3.66 billion on March 31, 2022.
Commercial loans, excluding PPP loans and sold commercial participation loans, grew by 4.9%, or 19.7% annualized, during the second quarter to a record $2.31 billion from $2.20 billion on March 31, 2022.
Consumer loans grew by 12.6%, or 50.5% annualized, during the second quarter to a record $848.7 million at period end.
Non–interest expense was $36.4 million in the quarter, or 1.95% of average assets on an annualized basis, compared to $36.6 million, or 2.03%, in the first quarter of 2022 and $33.4 million, or 2.18%, in the second quarter of 2021. Non–interest expense was $73.0 million, or 1.99% of average assets on an annualized basis for the six months ended June 30, 2022 compared to $65.6 million, or 2.19% of average assets on an annualized basis for the six months ended June 30, 2021.
The efficiency ratio for the period was 55.57% compared to 58.74% for the first quarter of 2022 and 57.73% for the second quarter of 2021. The adjusted efficiency ratio was 56.13% compared to 58.74% for the first quarter of 2022 and 57.45% for the second quarter of 2021. (See the "Non-GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio" table below.)
As part of the Company's annual branch performance review of Horizon Bank's (the "Bank") retail network, Horizon's Board of Directors approved the permanent closure of seven branch locations in the second half of 2022. A one–time charge of approximately $380,000 was recorded during the second quarter to record these branch locations' fixed assets at fair value.
Asset quality remains favorable as evidenced by non–performing loans at 0.51% of total loans at period end and net charge–offs to average loans represented 0.01% for the second quarter of 2022.
The Company was more asset sensitive as of June 30, 2022 compared to the previous quarter end, as deposit BETA's have lagged rising rates and an increase in adjustable rate assets. Current estimates for parallel rate shocks to the balance sheet, at a 100 basis point shock and 200 basis point shock, increase net interest income by approximately $7.0 million and $12.8 million, respectively.
Since March 31, 2022, deposit betas have significantly lagged our modeled betas at a 3% beta on total deposits over the last three months compared to our model using a beta of 35% for total deposits.
During the second quarter of 2022, the continued steepening of the yield curve resulted in unrealized losses on available for sale investments of $122.0 million compared to unrealized losses of $73.6 million at March 31, 2022. The impact to the tangible capital ratio was a decrease of 46 basis points from 6.94% at March 31, 2022 to 6.48% at June 30, 2022, a 6.63% decrease.
The Bank's capital is still robust with leverage and risk based capital ratios of 9.17% and 14.81%, respectively.

Summary

	For the Three Months Ended
	June 30,			March 31,			June 30,
Net Interest Income and Net Interest Margin		2022			2022			2021
Net interest income	$	53,008		$	48,171		$	42,632
Net interest margin		3.19	%		2.99	%		3.14	%
Adjusted net interest margin		3.12	%		2.93	%		3.13	%

Mr. Dwight continued, "Net interest margin continues to expand, illustrating the Company's highly asset sensitive balance sheet position. Both the expected additional rate increases, and loan volume will continue to positively impact net interest income and NIM through 2022. Pressure on deposit pricing so far has been limited and we believe will remain in line with or better than our competitors. This expectation reflects our confidence in the strength of our commercial and retail relationships."

	For the Three Months Ended
	June 30,		March 31,		June 30,
Asset Yields and Funding Costs	2022		2022		2021
Interest earning assets	3.46	%	3.22	%	3.48	%
Interest bearing liabilities	0.34	%	0.30	%	0.45	%

	For the Three Months Ended
Non–interest Income and	June 30,		March 31,		June 30,
Mortgage Banking Income	2022		2022		2021
Total non–interest income	$	12,434	$	14,155	$	15,207
Gain on sale of mortgage loans		2,501		2,027		5,612
Mortgage servicing income net of impairment		319		3,489		1,503

	For the Three Months Ended
	June 30,			March 31,			June 30,
Non–interest Expense		2022			2022			2021
Total non–interest expense	$	36,368		$	36,610		$	33,388
Annualized non–interest expense to average assets		1.95	%		2.03	%		2.18	%

	For the Three Months Ended
	June 30,		March 31,		June 30,
Credit Quality	2022		2022		2021
Allowance for credit losses to total loans	1.33	%	1.41	%	1.58	%
Non–performing loans to total loans	0.51	%	0.54	%	0.63	%
Percent of net charge–offs to average loans outstanding for the period	0.01	%	0.00	%	0.00	%

Allowance for	June 30,			Net Reserve						December 31,
Credit Losses		2022		2Q22			1Q22				2021
Commercial	$	34,802		$	(2,987	)	$	(2,986	)	$	40,775
Retail Mortgage		4,422			71			495			3,856
Warehouse		1,067			12			(4	)		1,059
Consumer		12,059			2,746			717			8,596
Allowance for Credit Losses ("ACL")	$	52,350		$	(158	)	$	(1,778	)	$	54,286
ACL / Total Loans		1.33	%								1.51	%
Acquired Loan Discount ("ALD")	$	7,206		$	(1,122	)	$	(769	)	$	9,097

"Our results this quarter were positively impacted by the significant progress towards achieving our goal of an annualized non–interest expense to average assets ratio of less than 2.00%. For the period ended June 30, 2022, our annualized non–interest expense to average assets ratio was 1.95%," Mr. Dwight continued. "We remain disciplined with a focus on expense management which is critical given the economic uncertainty and rise in inflation, however; we are confident in our ability to continue to reduce our annualized target to less than 2.00%."

Income Statement Highlights

Net income for the second quarter of 2022 was $24.9 million, or $0.57 diluted earnings per share, compared to $23.6 million, or $0.54, for the linked quarter and $22.2 million, or $0.50, for the prior year period. This represents the highest quarterly net income in the Company's history.

Adjusted net income for the second quarter of 2022 was $24.2 million, or $0.56 diluted earnings per share, compared to $23.6 million, or $0.54, for the linked quarter and $22.2 million, or $0.50, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles ("GAAP"), is a measure that Horizon uses to provide a greater understanding of operating profitability. (See the "Non–GAAP Reconciliation of Net Income" table below.)

The increase in net income for the second quarter of 2022 when compared to the first quarter of 2022 reflects an increase in net interest income of $4.8 million and a decrease in non–interest expense of $242,000. These items were offset by an increase in credit loss expense of $1.6 million and a decrease in non–interest income of $1.7 million and an increase in income tax expense of $436,000 for the second quarter of 2022 when compared to the first quarter of 2022.

Interest income includes the recognition of PPP loan interest and net loan processing fees totaling $198,000 in the second quarter of 2022, compared to $457,000 in the linked quarter. On June 30, 2022, the Company had $32,000 in net deferred PPP loan processing fees outstanding and $2.3 million in PPP loans outstanding. PPP loan net deferred fees and loans outstanding at March 31, 2021 were $141,000 and $6.7 million, respectively.

Second quarter 2022 income from the gain on sale of mortgage loans totaled $2.5 million, up from $2.0 million in the linked quarter and down from $5.6 million in the prior year period.

Certain revenue streams that generated higher income in the quarter ended June 30, 2021, were replaced in the most recent quarter with earning assets that had higher income margins and the increasing margin generated higher net interest income. For the quarter ending June 30, 2021, income from PPP lending, gain on sale of mortgage loans and mortgage servicing income net of impairment totaled $9.8 million. For the quarter ending June 30, 2022, the income from those same revenue streams totaled $3.0 million. The ability to replace this income and increase overall net income in the second quarter was attributed to the strategies management implemented to focus on higher earning assets.

Non–interest expense of $36.4 million in the second quarter of 2022 reflected a $371,000 decrease in net occupancy expenses and a $288,000 decrease in other expenses, offset by an increase in salaries and employee benefit expense of $222,000 and an increase in other losses of $194,000 from the linked quarter.

The increase in net income for the second quarter of 2022 when compared to the same prior year period reflects an increase in net interest income of $10.4 million, offset by an increase in credit loss expense of $1.7 million, a decrease in non–interest income of $2.8 million, an increase in non–interest expense of $3.0 million and an increase in income tax expense of $205,000.

Non–GAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
	Three Months Ended														Six Months Ended
	June 30,			March 31,		December 31,			September 30,			June 30,			June 30,			June 30,
		2022			2022		2021			2021			2021			2022			2021
Net income as reported	$	24,859		$	23,563	$	21,425		$	23,071		$	22,173		$	48,422		$	42,595
Acquisition expenses		—			—		884			799			242			—			242
Tax effect		—			—		(184	)		(166	)		(51	)		—			(51	)
Net income excluding acquisition expenses		24,859			23,563		22,125			23,704			22,364			48,422			42,786
Credit loss expense acquired loans		—			—		—			2,034			—			—			—
Tax effect		—			—		—			(427	)		—			—			—
Net income excluding credit loss expense acquired loans		24,859			23,563		22,125			25,311			22,364			48,422			42,786
Gain on sale of ESOP trustee accounts		—			—		—			(2,329	)		—			—			—
Tax effect		—			—		—			489			—			—			—
Net income excluding gain on sale of ESOP trustee accounts		24,859			23,563		22,125			23,471			22,364			48,422			42,786
DOL ESOP settlement expenses		—			—		1,900			—			—			—			—
Tax effect		—			—		(315	)		—			—			—			—
Net income excluding DOL ESOP settlement expenses		24,859			23,563		23,710			23,471			22,364			48,422			42,786
(Gain) / loss on sale of investment securities		—			—		—			—			—			—			(914	)
Tax effect		—			—		—			—			—			—			192
Net income excluding (gain) / loss on sale of investment securities		24,859			23,563		23,710			23,471			22,364			48,422			42,064
Death benefit on bank owned life insurance ("BOLI")		(644	)		—		—			(517	)		(266	)		(644	)		(266	)
Net income excluding death benefit on BOLI		24,215			23,563		23,710			22,954			22,098			47,778			41,798
Prepayment penalties on borrowings		—			—		—			—			125			—			125
Tax effect		—			—		—			—			(26	)		—			(26	)
Net income excluding prepayment penalties on borrowings		24,215			23,563		23,710			22,954			22,197			47,778			41,897
Adjusted net income	$	24,215		$	23,563	$	23,710		$	22,954		$	22,197		$	47,778		$	41,897

Non–GAAP Reconciliation of Diluted Earnings per Share

(Dollars in Thousands, Unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

2022

2021

2022

2021

Diluted earnings per share ("EPS") as reported

0.57

0.54

0.49

0.52

0.50

Horizon Bancorp, Inc. Reports Record Second Quarter 2022 EPS of $0.57